Real estate investments in CEE region. Are there any diversification benefits from direct CEE real estate investments to Western European real estate portfolios?

Present research investigates commercial real estate investments in Central and Eastern Europe (CEE) within Pan-European portfolio during the period of 2007 to 2016. The situation of this recently “discovered” market by global real estate investors is analysed with the help of quantitative and qualitative methods using boom-bust model principles.

Firstly, the direct property data set is reviewed, and then the performance of coun-tries based on their annual returns is compared. The overall total return and the corresponding volatility over 3, 5 and 10 years is calculated. Based on direct re-turns series an optimal European portfolio is calculated using modern portfolio theory. The role and positioning of individual countries of this region is identified by maximising the Sharpe ratio. Furthermore, economic data of each country is analysed and compared with real estate returns with the support of cross-correlation analysis in order to find out regional clustering.

Secondly, the correlations of economic growth among countries are examined over the period of the last 25 years between 1991 until 2016. Finally, return series and GDP growth series are put into a cross-sectional correlation analysis in order to investigate dependencies between these indicators. This could possibly be the key to forecast future growth of total returns in certain countries with high correlations between GDP growth and real estate returns.